New Personal Tax Rate of 39%
From 1 April 2021 the top tax rate for an estimated 2% of New Zealanders will move to 39%.
Here’s what it means:
- Applies to income earned by individuals on amounts over $180,000 from 1 April 2021
- Includes bonus payments, back pays and redundancies
- No change for those earning less than $180,000
- New top FBT rate (63.93%) to be added for fringe benefits provided to employees earning an ‘all-inclusive’ income of $129,681
- New top Employer Superannuation Contribution Withholding Tax (ESCT) rate of 39% where personal income from employment plus employer KiwiSaver contributions is greater than $216,000 per year.
Actions prior to 1 April 2021:
- Employment income is taxed at the ‘date the cash is paid’ so if bonus payments are normally accrued, these will need to be calculated and paid out prior to 31 March 2021
- Where a company has retained earnings and imputation credits available, dividends could be paid prior to 31 March. Additional tax (DWT) would be calculated at 5% instead of 11% after 1 April
- Provisional tax – review of tax implications
- Fringe Benefits – review how motor vehicles are provided to high earning employees
- KiwiSaver and salary sacrifice – for salaries less than $205,000 consider a salary sacrifice in return for an increased KiwiSaver contribution.
Individuals vs Non-Individuals for Investment Income
With any tax rate changes it is important to consider the wider implications, particularly when it comes to your investment plans. Depending on your tax profile and overall investment strategy there are opportunities to consider who holds the investment. For individuals in the new tax bracket of 39%, alternatives to personal investments might be:
- Trusts – 33% trustee tax rate and the opportunity to distribute to lower tax rate beneficiaries
- Companies – 28% company tax rate but there are current account and shareholder interest implications to consider
- Portfolio Investment Entities (PIE) - 28% capped tax rate.
It is important to take advice, if you are considering the structure of your investment options going forward, as these decisions should always be commercially driven rather than tax reduction. Please get in touch if you are considering any form of restructure.
The comments above should not be relied upon in making investment decisions and are not intended as investment advice.